Thoughts on politics, philosophy and economics

Decentralisation and Tax

In the recent Scottish referendum campaign we were treated to a brief insight into the relation between decentralisation and taxation. Respect MP George Galloway stated in an interview with CNBC that tax competition between an independent Scotland and the rest of the UK would inspire a “race to the bottom”[1]. Though I have some regard for Mr Galloway as a man of forthright ideas, describing the reduction in state plunder as a “race to the bottom” is rather revealing of the socialist mind. That being said his assessment was accurate; competition between authorities with the power to tax puts a downward pressure on rates. A single rate of taxation across a country forces those wishing to avoid it to emigrate, thus burdening them with all the associated difficulties. Having several competing rates within the same country makes the prospect for flight simpler, thus encouraging these smaller entities to lower their rates so as to not haemorrhage citizens and businesses.